Singapore court rules in Maldives' favour; GMR fears Maldives may not be able to compensate it adequately

Sruthijith KK

The investment of GMR InfrastructureBSE -2.02 % and debt exposure of a clutch of Indian banks to the Male International Airport appeared to be under a cloud as a Singapore court upheld the right of Maldives to take over the airport, after days of fierce wrangling.

| ET Bureau | Dec 7, 2012, 10.20 AM IST

NEW DELHI: The investment of GMR Infrastructure and debt exposure of a clutch of Indian banks to the Male International Airport appeared to be under a cloud as a Singapore court upheld the right of Maldives to take over the airport, after days of fierce wrangling. The court, however, also emphasised GMR's right to compensation.

The Singapore Court of Appeal, the city state's highest court, overturned a Tuesday order by a lower court that barred Maldives from interfering with the airport's operations. The court, however, held that "the wrongful taking of the airport would amount to an act of expropriation for which the respondent (GMR-led consortium) would be entitled to be compensated in accordance with the agreement", according to a copy of the judgement seen by an ET reporter.

The dispute over the airport and statements from Maldives officials that the administration intended to disregard the earlier court order had resulted in a diplomatic row between India and the archipelago.

The $511-million contract that GMR and Malaysia Airports Holdings Berhad won in November 2010 to modernise and run the airport for 25 years mandates Singapore as the jurisdiction in the event of disputes. The finances of the deal went awry when a local court struck down the provision for a $25 airport development fee as illegal.

While the then government guaranteed to protect the project's revenues, a regime change saw the airport deal becoming an emotive and politically charged issue. The current government, under President Mohammed Waheed terminated the agreement on November 27, sparking off a legal battle.

The Singapore Court of Appeal relied on the doctrine of balance of convenience in setting aside the high court order. "Maldives has the power to do what it wished to do in these circumstances, including the power to expropriate the airport.

Had they done that...there would be no room for seeking or granting the interim injunction. The agreement provides for the respondent's rights in the event of expropriation," said the judgement, signed by Singapore Chief Justice Sundaresh Menon. The complete written judgement is expected to have more elements of the verdict.

Transition Panel to be Set up

Maldivian authorities said the transfer of operations at the airport will commence Friday. "The transfer of the airport will begin from 10 am on Friday. Senior GMR officials met with our ministers today and agreed that a transition committee will be put in place tomorrow morning and it will oversee a smooth transition from GMR to Maldives Airports Company Ltd," Maldives President Mohamed Waheed's Press Secretary Masood Imad told ET.

In a statement, GMR said it was studying the oral order passed by the Singapore Court of Appeal and will be able to comment only after studying the final written order. A GMR spokesperson declined to comment whether the airport handover would begin on Friday.

The future of the airport or GMR's investment in Maldives, the largest foreign investment in that country, is unclear. The $511-million project has a debt component of $358 million. The lenders, led by Axis Bank, include Indian Overseas Bank and Indian Bank.

Imad, the press secretary said the Maldivian airport company, MACL, will run the airport as it used to before GMR took over. He said for the pending development work that has been stopped, the country will invite fresh contracts. "We will not have a deal like this. MACL will probably take a year-and-a-half to settle down and call for tenders," he said.

Maldives has also filed a petition in the Singapore High Court praying that the court must determine the compensation due to the GMR-led consortium under the contract, Imad said.

"Whatever compensation is decided by the court, we will pay." It's unclear if the proceedings underway in the Court of Appeal will weigh in on compensation. At a press conference in Delhi on Wednesday, representatives of GMR had expressed doubts about Maldives' ability to adequately compensate the company.

"The country's budget is $1 billion. Its GDP is about $2 billion. We have not determined a figure, but there have been calculations that it will be upwards of $700 million. We are talking about 35% of the country's GDP as compensation," Saurabh Singhal, an advisor to GMR, said at the press conference.

Last month, Maldives had requested a $25-million loan from India to pay civil servant salaries and to build a police academy. GMR has already paid $150 million to Maldives as revenue share and has also invested significantly in modernising the airport.

India responded to the Singapore court decision saying the judgement was being studied. External Affairs Ministry spokesperson Syed Akbaruddin said the decision has only dealt with the sovereign right of a nation. The legality of the agreement and other pending issues have not been taken into account, he pointed out.

"These issues are not affected with judgement or not responded to... Fulfilment of all legal process and requirement is what we want to see in this case and we hope all relevant contracts and agreements would be adhered to and all legal process carried through," he said. In a statement on Tuesday, the ministry had said any "arbitrary and coercive measures" would "inevitably have adverse consequences for relations between India and Maldives".

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